The BT share price jumped another 5% this week. Was I wrong to sell?

Mark David Hartley ponders the rationale in selling his position in BT Group, as the stock’s share price notched up another 5% this week.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: BT Group plc

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I sold my BT Group (LSE: BT) shares last month despite the share price climbing 16% this year. While I don’t necessarily regret the sale, I’m now wondering if I should have held on to them.

One major company thinks so: Bharti Global recently announced plans to buy a 24.5% stake in BT. The Indian multinational conglomerate is a parent company of Bharti Airtel, the majority owner of the UK-listed telecoms company Airtel Africa.

My sale was part of a strategy to reduce my number of holdings and rebalance the capital into defensive stocks. While it helped to lower my risk score, it also reduced my average dividend by stripping out BT’s decent 5.5% yield.

Should you invest £1,000 in BP right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BP made the list?

See the 6 stocks

So on reflection, was it the right choice?

Created with Highcharts 11.4.3Bt Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Digital delays

My foremost concern about BT is the risk it poses with its weighty debt load. Years of investment into the group’s plans for a fully digital UK network have left it in a deep hole. The effort has been further delayed by disruptions, prompting the group to extend its expected completion date to the end of January 2027.

How much more debt will that add to its current sum of £18.5bn? 

The figure is already considerably higher than its £14.3bn market cap. Of course, I’m not worried that a company as established as BT will fail. But in my experience, debt and dividends don’t play well together. 

How long before it starts cutting dividends to meet debt obligations? It wouldn’t be the first time — BT has cut, reduced, or paused dividends nine times since the millennium began.

Source: dividenddata.co.uk

Keeping afloat

For now, things look okay. Operating income (EBIT) is sufficient to cover interest payments by 3.7 times and the group’s annual 8p dividend per share is just below earnings per share (EPS). 

There’s no immediate reason to think things will turn south.

One promising metric is BT’s high earnings growth potential. Future cash flow estimates put the share price at 73% below fair value. With earnings expected to increase 68% in the coming 12 months, the group’s forward price-to-earnings (P/E) ratio is 10.3. Even its trailing P/E ratio of 16.7 is below the industry average.

The valuation is similar to that of competitor Vodafone, with a P/E ratio of 19.2 and a share price undervalued by 69%. And once Vodafone slashes its dividend to 5% next year, the two companies will be very well matched (barring the high debt-to-equity ratio). 

The bottom line

From a risk-averse point of view, I don’t feel I was too hasty selling my BT shares. If everything goes smoothly with the digital upgrade, I may come to regret the decision. BT appears to have decent growth potential so if it can avoid further disruption, I think a 12-month price target of 200p is not unrealistic.

That said, it may be a while before I’m tempted to buy back into the stock. Until it shows signs of making serious inroads to reducing its debt, I’m choosing to err on the side of caution. 

Should you invest £1,000 in BP right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BP made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Mark Hartley has no position in any of the shares mentioned. The Motley Fool UK has recommended Airtel Africa Plc and Vodafone Group Public. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 30% in weeks, does the BAE Systems share price still offer value?

The BAE Systems share price has been on a tear over the past couple of months. This writer sees limited…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Hunting for shares to buy as the market trembles? Remember this!

After a choppy week in global stock markets, our writer goes back to basics in his hunt for bargain shares…

Read more »

Investing Articles

3 simple principles to help build wealth in an ISA

As a new tax year opens up new ISA allowances for many investors, our writer shares a trio of things…

Read more »

Investing Articles

US trade tariffs: what they could mean for UK shares like Ashtead, Compass Group, and Experian

US trade tariffs continue to rock global markets, and the UK is no exception. Our writer considers how a new…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Dividend Shares

The Trump slump has smashed these FTSE 100 shares!

After a rough week for US and UK shares, investors have been shaken. But now these FTSE 100 stocks have…

Read more »

Investing Articles

£10,000 invested in Rolls-Royce shares 5 years ago is now worth…

Rolls-Royce shares have been on fire since April 2020. Part of this is the result of pandemic restrictions lifting, but…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

£10,000 invested in Tesla stock at its peak in 2024 is now worth…

Over the last few months, Tesla stock has lost nearly half its value. Here, Edward Sheldon explores a few takeaways…

Read more »

Investing Articles

Is the S&P 500 heading for an epic stock market crash?

Our writer shares his thoughts on a very crazy time for the S&P 500 and the wider stock market. How…

Read more »